The CFO and Fundraising

For a variety of reasons, the advancement / development / fundraising operations of an institution tend to operate in ways that drive CFOs nuts. Since no rebuttals are accommodated on this blogsite, you may be expecting me to unload on those back-slapping marketing types who travel extensively, spend like Caesar and who think all raised dollars are created equal, even if the ones raised today are from the estate plan for a 30 year old!

No, I will not be doing that. I will say that CFOs can be brutal to advancement operations. Some of the comments I have heard from colleagues are downright nasty. It is unfortunate because the function performed by the advancement department is critical to the institution’s long term success. Too often, shortsightedness on the part of the CFO leads to a challenging relationship that shouldn’t be.

So, let me spend some time defending those who are charged with raising money for our colleges and universities. Many are accomplished professionals who have to create success from scratch every day. There are few inherited clients in that business; you have to find them, then friend them, before collecting funds from them. That cycle could take years, with the risk of the slightest misstep alienating even the most successful relationship builder. It is hard work and those who are successful at it have a combination of savvy and training that is worth a lot more in a sales career elsewhere. They have given up a great deal to serve in these capacities. Maybe that is why it is so difficult to find leadership in that area.

Consider then these comments and recommendations.

First, the most important function Advancement performs is their efforts directed toward planned gifts. Say what? You mean the raising of moneys that will not arrive until years from now is to be commended? We certainly don’t pay these folks with future sums. What can a CFO be thinking?

The majority of transformational gifts come from some form of planned giving. I include in that category gifts that are received from those who are still living but can see the end of the road drawing near. There is a near universal fear people have of being forgotten. What happens to me after I move on to the next experience; one that I have faith that I will enjoy but know very little about? Will the values and dreams that I have for those remaining in this world continue to be championed by those who follow? Will my heirs be good stewards of the funds I leave them, reflecting my values in their spending decisions? What statement will be made about me by the estate I leave or the gifts I give as I approach the end of this life?

All of these emotions and desires are fundamental to the human experience. In general, gifts that are dedicated toward immediate expenditure come from the donor’s current earnings. Gifts that change the world for generations tend to come from assets accumulated over a lifetime. Regrettably, many institutions, strapped for current cash, place an unrealistic emphasis on raising current, unrestricted donations to make the budget balance. I’ve heard the arguments that this gets people in the habit of giving and opens them up for more later on. That may be true for some but the really big givers are fully familiar with philanthropy and are less interested in paying this month’s light bill than in funding scholarships for a generation not yet born.

When a solid planned giving program has been established over twenty years, the funds will come rolling in. So what if they are restricted? They can be used to reduce the costs of student attendance or running a program, thus bringing down the high cost of higher education. Donors are in favor of that, particularly when their name is associated with an ongoing endowment gift.

So, try to avoid the tyranny of the urgent and invest in planned giving. Your successors will thank you.

Second, avoid unnecessary gift restrictions. Some institutions solicit endowments for scholarships alone and ask the donor to stipulate as many restrictions as possible, even providing a worksheet that gives the donor ideas they would have never thought of. This can backfire when stipulations are so rigid that few qualify for the scholarship or programs that are supposed to benefit from the gift are curtailed or eliminated. A general restriction for an endowed scholarship is fine. A restriction that supports a chair in business ethics may support the cost of a faculty member, including his or her teaching loads. An endowment for which a building is named may be used to pay for the upkeep or operation of the facility over its lifetime. Those who follow you will thank you for reasonable, budget-relieving restrictions.

Third, endowed scholarship awards should never be treated as a bonus to the student. Some institutions do not award scholarships until the student applies for it in the fall semester for the current year. In those cases, the student is already here and supposedly has put together the way to pay for their schooling. If the award is granted, it becomes a rebate of sorts. The student can always use more money but their financial aid package has already been set. Givers to endowments want to see scholarships that are of primary benefit to the student and help to reduce tuition discount costs to the institution. It is a double win that benefits student and institution for generations to come. Applying for bonus payments does not meet those goals. If at all possible, package endowed scholarships with the aid plan that is sent out in the spring. It is a better way to guarantee mutual benefit to student and institution.

Fourth, current funds do need to be raised and their total should exceed the cost of the advancement operation. Not much more should be necessary. I have seen institutions who raise $1 million in unrestricted annual funds but spend $1.5 million of their advancement operation. Of course, some of those efforts are used toward planned giving. Still, it is not recommended that operational cash be used to supplement the advancement effort. Make sure the operation pays for itself while avoiding an unhealthy focus of raising too much in current dollars versus emphasizing planned gifts. Balanced stewardship avoids students complaining about their tuition dollars being invested in fundraising and faculty believing they are not paid as well as they should. This should be a part of the institutional goal set for advancement.

Finally, exercise care when making reductions to your advancement operation. Make sure that the various initiatives that are invested in each year are evaluated for their effectiveness and efficiency. Are people meeting their goals? What is the cost/benefit relationship? When reducing a person from the team or eliminating an annual initiative, the question must be asked whether the institution will be better or worse off next year. It may seem like an easy target to unload a fundraiser. Make sure that you can justify what may be the outcome from that action.

In conclusion, the CFO needs to be a strong supporter for the advancement effort, encouraging careful stewardship of the activities of that area and emphasizing initiatives directed toward planned giving. Don’t place too many restrictions on planned gifts; ensure that they can be used to offset other institutional costs. And make sure that funds raised for current spending cover at least the cost of the advancement department. If cuts are proposed, avoid those that generate much more benefit than their cost.

Advancement is your friend. The benefits of that friendship may not be realized by you but your successors will be awfully grateful for the efforts taken today that bring greater stability tomorrow.